Egypt and the IMF: a good start, but only a start
Egypt’s agreement with the IMF on a $12bn, three-year loan will help finance Egypt’s import needs while cushioning the effects of the reduction in fuel subsidies and the floating of the pound, prior actions that had been demanded by the Fund. Egypt has already received the first tranche of $2.75bn after having secured $6bn in additional financing. Read more
Power the rise of emerging market consumers to tackle climate change
It would be easy to become depressed about the outlook for climate policy. After all, the topic barely warranted a mention during the recent US election, except for occasional disparaging remarks from the now president-elect. But at this week’s UN climate conference in Marrakesh, delegates have attempted to build on the success of last year’s event in Paris, which delivered a watershed moment in the form of a long overdue agreement on emissions. This year’s conference could be remembered for an equally enduring landmark if the parties choose to accelerate a quiet revolution that is radically reshaping energy systems around the world.
Globally, 2.2bn people have no access to electricity or endure highly unreliable service and rely instead on a toxic mix of kerosene, paraffin, candles and wood. For a third of the world’s population energy is dangerous, erratic and ruinously expensive. Lighting can cost a poor household more than a hundred times what it does in rich countries. Some 4.3m people die each year from the effects of pollution from cooking alone. Read more
Trump builds walls, Xi builds bridges in LatAm
Latin America is experiencing its worst economic growth — projected to be negative this year – since the lost decade of the 1980s. At this crucial time, the United States is turning its back and stepping backward from Latin America while China takes further steps forward in its economic relations with the region.
President elect Trump has pledged to walk away from the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA), as well as steeply raise tariffs on Mexican manufacturing. He also says he will scrap the Dodd-Frank financial reform bill and engage in questionable fiscal and monetary policies. To top it off, he pledges to deport Mexican and other Latin Americans from the United States and build a wall so they can’t come back. Read more
Digital finance and the power of scale
The ideal financial customer is not who you think. First, she lives on about two dollars a day. Second, she lives in rural Africa, the Middle East, South Asia or Latin America. Finally, she’s never owned a financial account of her own.
What’s ideal about all that? Growth. And digital technology is the key to driving it. Read more
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Facing up to authoritarian influence-peddling
While the US was debating Russian hacking and leaks ahead of its elections, EU leaders met last month to discuss Moscow’s efforts to influence European liberal democracies through misinformation and propaganda. “We don’t have the tools to look at this centrally,” one senior EU diplomat complained, referring to a lack of cooperation between EU intelligence services. The official is right – but in a much deeper sense.
For 25 years, open societies saw themselves as the uncontested winners and expected that the remaining autocracies, with the help of western pro-democracy actors, would be relegated to the dustbin of history. So it is with disbelief that we are facing a thrust reversal. Read more
Why direct climate funding to African farmers will pay off
As the world descends on Morocco for the annual United Nations climate conference, the host nation is championing an unlikely hero: African agriculture.
After launching the ambitious Adaptation of African Agriculture (AAA) initiative in September, the Moroccan government seeks to mobilise $30bn of investment for the sector that is under the most significant threat from climate change, in the region that is the least equipped to deal with it. According to current estimates, the negative effects of climate change are already reducing Africa’s GDP by about 1.4 per cent, and the costs arising from adaptation to climate change are set to reach an annual three per cent of GDP by 2030. A principal victim of this is the agriculture sector, which not only feeds the chronically food-insecure continent, but forms the backbone of its economy and its route out of poverty. Read more
Egypt devalues – now the hard work starts
After struggling with a lack of dollars in its economy for over a year, the Egyptian central bank finally threw in the towel, moving to a liberalisation of the pound against the dollar to allow the market to set the rate and the economy to start moving again.
The initial range of devaluation is from 8.9/$ to 13/$, meaning the pound has more than halved from the level it was at during the Arab Spring. This is in line with where the black market rate has been in recent days as the economy ground to a halt, having appreciated from a rate of 18/$ over the weekend and from 15/$ last week. The uncertainty in the value of the pound over the last few weeks has caused an economy under pressure, with GDP missing its 5 per cent growth target at 3.8 per cent, to slow further, even as a series of deals were negotiated with the IMF, Gulf nations, the G7 and China for nearly $20bn in support once a series of reforms were implemented. Read more
Colombia’s coming peace dividend
An new era is opening up for Colombia, as the promise of peace, prosperity and opportunity becomes more and more tangible.
As Latin America’s oldest democracy and one of its most open, competitive and business-friendly economies, Colombia now looks to the world and especially to the UK for trading and investment ties. Read more
Forget the IMF: global chemicals are your guide to future performance
The global chemical industry has long been the best real-time indicator of the global economy. This is partly because of its size, as the third-largest industry in the world after agriculture and energy, but also because of its global and application reach. Every country in the world uses relatively large volumes of chemicals, and their applications cover virtually all sectors of the economy, from plastics, energy and agriculture to pharmaceuticals, detergents and textiles.
The first chart confirms the position, showing the latest IMF data for global GDP versus the American Chemistry Council’s (ACC) data for global chemical Capacity Utilisation (CU%) since 1988, in terms of percentage change from the previous year. Read more
China’s development lenders embrace multilateral co-operation
By Raffaello Pantucci, RUSI
There has been much speculation on the role of the Silk Road Fund (SRF) and Asian Infrastructure Investment Bank (AIIB) in China’s outward investment push.
They are both instruments created by Beijing to provide economic firepower and bring international credibility to the ‘Belt and Road’ vision that has become President Xi Jinping’s keynote foreign policy concept. But in reality they have both undertaken a series of investments that, while substantial and linked to ‘Belt and Road’ countries, pale in size next to China’s overall outward investments. Read more
Education key to resolving jobless crisis in Middle East
By Mouayed Makhlouf, IFC
Look out across the Middle East and North Africa (MENA), and you’ll see a rising tide of youth unemployment. In fact, MENA has the highest rate of official unemployment of any region in the world, averaging at around 11 per cent.
Those are sobering numbers – and a sign that the region hasn’t done enough to create opportunities for its young people. But unemployment in the Middle East and North Africa doesn’t need to be that high.
The region has a large number of companies, many in up-and-coming industries like information technology or logistics, which need workers. Yet job seekers just don’t have the technical skills that employers are looking for, causing many positions to remain unfilled. Read more
Parallel to the global narrative about Africa’s economic progress, the discussion about private equity in the region has taken on a bipolar nature—either there is too much money chasing too few deals or there is a dearth of capital for African countries’ entrepreneurs. The Economist warned in 2015 that “too much money is pouring into too few funds, chasing the few big deals on offer”. At the same time, the IFC estimates that “up to 84 per cent of small and medium-sized enterprises (SMEs) in Africa are either un-served or underserved” in terms of access to capital.
Given our collective decades’ worth of experience in advising and investing in African markets, we believe that both statements are true and to bridge the gap the private equity industry needs to have a Goldilocks moment of right sized money for Africa’s next wave of growing companies. Read more
Germany gets jittery over Chinese takeovers
By Martin Fischer, Alaco
A series of recent Chinese takeovers of Germany’s top tech companies has unnerved many Germans who fear the trend could undermine the economy. Germany has always been more comfortable as an investor than a recipient of investment, with the Chinese shopping spree sparking a wave of protectionist sentiment, which some German politicians are looking to exploit.
Germany has emerged as the preferred destination for Chinese takeovers in Europe. In the first half of 2016 alone, EY, an accountancy firm, reported that Chinese investment in Germany exceeded $10bn – more than the combined total for the previous five years. But Germans are nervous about the influx of cash, primarily because the companies being acquired are small and medium-sized enterprises that form the backbone of the economy. Read more
The balance sheet on immigration
Amid heated national debates on immigration in Europe and the US, economic research is increasingly showing that migration is good both for countries of origin and for countries of destination, and for the global economy. But crucially missing from the current debate is how migration, when increasingly driven by man-made calamities, is sweeping under the carpet underlying problems of environmental destruction, overpopulation and joblessness. While favouring migration on grounds of overall economic well-being, the top priority must be to address these contributing factors.
Consider first the global balance on migration. Some 250m people — 3 per cent of the global population — are migrants, of which 20m are refugees fleeing armed conflicts and persecution, and escaping poverty and, increasingly, the effects of natural disasters. The US, Russia, Germany, Saudi Arabia, UK and India are in the top 10 destinations in terms of numbers of arrivals. Migration helps to lower unemployment rates at home and raises remittances, which are vital economic pillars in many economies such as Bangladesh, El Salvador, Nepal and the Philippines. In 2015, the remittances of overseas workers to developing countries amounted to nearly $450bn, three times official development assistance going to the developing world. Read more
EMFX: ‘too much convergence’ and other investment fallacies
We had incorporated a much better short-term outlook for emerging markets in our EM trade recommendations since the second quarter of this year, essentially on the back of a few important developments.
Firstly, the exhaustion in the USD cycle, particularly supported by the market’s perception of a more tentative US Federal Reserve. Indeed, as highlighted by our team on previous occasions, differently from the period 2013-15, we have been trading “policy convergence in G3″, rather than “policy divergence”. This fundamentally reduced the momentum in the USD bullish cycle seen in the previous years. Read more
Sri Lanka’s regional hub ambitions face opposition
By Isabel Stoker, Alaco
Sri Lanka is set to sign a major trade deal with India later this year, which it hopes will be the first step towards the island becoming a financial and business hub in the region. But the government of Ranil Wickremesinghe, prime minister, will have to work harder to win over domestic opponents of the Economic and Technological Cooperation Agreement (ETCA) who fear it will result in the country’s exploitation by Indian businesses.
Earlier this month Mr Wickremesinghe announced that the ETCA would be signed by the end of December. Sri Lanka has two other free trade agreements in the pipeline, with Singapore and China. The government began negotiations on the former in June and is expected to complete the latter by March 2017. Read more
Britain’s Asian opportunity
We now know that the UK will trigger Article 50 of the Lisbon Treaty by the end of March 2017, giving the country two years to negotiate its exit from the European Union. But while most pundits have focused on the UK’s future policies regarding the EU, the UK must think seriously about how to use the opportunity of Brexit to reconsider its trading relationships with Asia, the world’s fastest-growing region.
Asia is a bright spot in a fragile world economy. While advanced economies are projected to grow at an anaemic 1.4 per cent this year, developing countries in Asia continue to grow at 5.7 per cent, with India leading the way at an impressive 7.4 per cent clip. What’s more, the region is home to a growing consumption-oriented middle class, which will reach over 2bn people by 2030. Read more
Ukraine: still far to go in fighting energy corruption
Ukraine’s track record of massive corruption in energy is a sadly familiar story. Billions of dollars have been siphoned off annually into political largesse and party war chests. Successive administrations have proclaimed reform even as insiders fought over energy franchises. Unless corrected, the energy sector will continue to corrupt Ukrainian politics and make the country vulnerable to external threats.
Ukraine’s energy sector is also crucial to its neighbours. Although its advantages in energy transit have been eroded, Ukraine still transports nearly half of Russia’s gas exports to Europe, at least until additional bypass pipelines – Nord Stream 2 and Turkish Stream – can be built. Russia has steadfastly built new pipelines to bypass Ukraine, and employed transit deals to compromise its leaders and to demonstrate to European customers that Ukraine is an unreliable transit partner. Read more
China’s service sector frailties may thwart key reforms
By Max J. Zenglein, Mercator Institute for China Studies
China’s leaders place high hopes on the vibrancy of the economy’s service sector, but in reality it has not been able to fill the void left by the decline of manufacturing. The inability of services to pick up the slack in turn creates a temptation for the government to delay overdue structural reforms while maintaining a reliance on investment-driven growth. Read more
Agricultural growth in emerging markets is falling short of global goals – what can be done?
The globally-adopted target to double the productivity of small-scale farmers, set by the United Nations’ Sustainable Development Goals last year, remains out of reach for most emerging markets. That is according to a new report by the Global Harvest Initiative (GHI) released at the Borlaug Dialogue in Iowa this week. This raises the question: how will we feed the projected 9.7bn people that will be on our planet by 2050, when more than half of them will live in low and middle-income countries?
The GHI defines productivity as a measure of output per unit of input. Our analysis shows that global agricultural productivity must increase by 1.75 per cent annually to meet demand. While the global average rate of productivity growth is only just missing the mark at 1.73 per cent, low-income countries are lagging far behind, with an average annual rate of just 1.3 per cent. Read more
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